Category: Hungary

It is a common labour law problem in Hungary that in case the employee, due to medical reasons, becomes permanently unfit for the job he previously fulfilled, the employer does not amend or terminate the employment (the latter of which would entail an obligation to pay severance pay), but keeps the employee on “idle time” without giving him tasks and salary. In our article, we examine this issue in light of the recent decision of the Hungarian Supreme Court.

Facts

The claimant worked for the defendant for 25 years as an unskilled worker. In March 2021, after a year-long sick leave due to illness, his general practitioner declared him as fit for work. Shortly after his return, the employer sent the employee for an occupational health examination. According to the expert opinion prepared on 6 April 2021, the employee was permanently unfit for the job he held, because heavy physical work was not recommended in view of his health impairment and hearing loss.

After the occupational medical examination, the employer did not give tasks and salary to the employee. In May 2021, the employer informed the employee that it cannot offer him another job which he could fulfil considering the restrictions in the opinion of the occupational doctor.

In August 2021, the employee called on the employer to either amend his job in view of his reduced capacity to work or to terminate the employment relationship by giving notice. Since the employer did not respond, the employee terminated his employment with immediate termination in September 2021. The employee started lawsuit against the employer and requested the payment of his salary for the period between April-September 2021, severance payment and other payments in connection with the employer’s unlawful procedure.

The employer argued that it would have been against the law to employ the employee as he was medically unfit for his job and the employer could not offer him a different job.

First and second instance judgement

The first instance court granted the claim and ordered the defendant to pay the amounts indicated in the claim.

The court found that the general practitioner declared the employee fit to work, therefore he was not completely incapable to work, the restrictions in the expert opinion only applied to certain work processes, but did not eliminate the employer’s employment obligation. If the employer does not fulfill its employment obligation for reasons within its competence, it is obliged to pay salary to the employee for the downtime and it also can be a ground for termination of the employment by the employee.

The second instance court upheld the judgment, however, it took a different legal position: according to the court, the employee could not be considered fit for work (in general) if, based on the opinion of the occupational doctor, he was unfit for the job he held at that time, as fitness for work can only be considered within the scope of the current job of the employee.

However, the second instance court argued that the employer’s obligation to employ (i.e. to give tasks and salary to the employee) cannot be interpreted narrowly, therefore, in case the employee, due to medical reasons, becomes unfit for a certain job, the employer is obliged to adopt the employment and give the employee tasks that he can fulfil. The court emphasized that the employer did not fulfil its employment obligation as it has clearly refrained from adapting to the employee’s changed ability to work.

The defendant requested the judicial review of the final judgment. According to its position, the employer was not obliged to offer a different job to the employee after he became medically unfit to his current job.

The decision of the Supreme Court of Hungary

Based on the Supreme Court’s decision, the request for review was well-founded, so the court annulled the final judgment and ordered the first-instance court to conduct a new hearing.

According to the Supreme Court of Hungary, the second instance court correctly found that the employee was not fit for work, however, it wrongly concluded that the employer should have offered the employee another job. According to the Hungarian Labour Code, in case the employee becomes unfit for his job due to medical reasons, the employer is only obliged to adapt the employment relationship to the changed conditions by offering more favourable working conditions or work schedule. However, this obligation does not include the search for another job for the employee.

Therefore, the courts should have examined whether the employer fulfilled the above-mentioned obligation, whether it had the opportunity to provide more favorable working conditions. However, the trial court did not carry out an evidentiary procedure for this, so the trial must be repeated.

Comment

The examined case is a typical example of when the employer neither changes the job nor terminates the employment after the employee has become unfit for the job due to medical reasons. The underlying reason for this is usually to avoid the payment of severance by keeping the employee on the staff without tasks and salary and waiting until the employee resigns, in which case, there is no severance.

Based on the decision, such procedure can be legal, as the employer is only obliged to adapt the working conditions within the scope of the given job of the employee, if the employee’s capacity to work changes. if this is not possible, the employer is not obliged to provide work and pay, nor to terminate the employment relationship.

As the above-mentioned practice can be considered a misuse of rights by the employer, the case law reinforcing the practice differs from the general approach of labour courts which favours the employees.

(In the article, we analysed Supreme Court Decision published under No. “BH 2024.1.16 I.”)

By Peter Gritta, Attorney-at-law, SmartLegal Schmidt & Partners

Schoenherr has advised the OTP Real Estate Investment Fund on its purchase of a land plot in Ullo, Hungary, from Rossmann, the development agreement for a BTS logistic center on the site with development manager Panattoni, and a long-term lease agreement for the facility with Rossmann as tenant. CMS and Noerr advised Panattoni. PwC Legal reportedly advised Rossmann.

According to Schoenherr, “this deal marks one of the largest BTS agreements in the domestic logistics market in 2023. The newly developed, tailor-made 32,000-square-meter logistics center will serve Rossmann’s retail network with state-of-the-art, semi-automated warehousing and stock management solutions.” 

The OTP Real Estate Fund is an open-end fund that invests primarily in Hungarian real estate.

Headquartered in Germany, Rossmann is a drugstore chain operating in Europe and employs around 56,000 people.

Panattoni is a real estate developer specializing in industrial real estate and warehouses.

The Schoenherr team included Partners Laszlo Krupl and Gergely Szaloki and Associate Viktoria Magyar.

The CMS team included Partner Gabor Czike and Senior Associate Laszlo Jokay.

The Noerr team included Partner Zoltan Nadasdy and Senior Associate Eszter Hegedus.

In Hungary, a legal entity can separate into multiple legal entities through division or spin-off. In the case of a spin-off, the original legal entity continues to exist, and a portion of its assets is transferred to the newly formed legal entity as its successor.

The legislator supplemented this regulation with the institution of the internal spin-off, stating that “internal spin-off can also occur in a way that the separating legal entity remains, and with a portion of its assets, it creates the successor legal entity, of which it becomes the sole shareholder.”

Essentially, what distinguishes internal spin-off from spin-off is that the newly formed “new successor” legal entity is not owned by shareholders of the separating legal entity, but the separating legal entity becomes its sole shareholder. Another important change is that while previously, Private Limited Companies (Zrt.) could not undergo separation, now the possibility of internal spin-off is also provided for them.

Considering that the accounting and procedural rules related to internal spin-off are covered by a separate law, the Act on Accounting and the Act on Transformation, Merger and Demerger of Certain Companies were necessary to modify. The regulations state that the rules of separation are fundamentally applicable to internal spin-off, while simultaneously specifying different rules applicable to the new institution.

As this specific form of corporate separation was not possible before, it is expected that many businesses will take advantage of this opportunity.

Restrictions on Alienation and Encumbrance of Business Shares

From January 1, it is possible for the entitled parties to include restrictions on alienation and encumbrance not only in the company’s articles of association and member list but also in the publicly accessible company register.

Extension of Information on Pledge

The new rules of the Civil Code on pledges now require the disclosure of the amount of the claim and the maximum amount in the company register regarding pledge rights burdening business shares. This means that the scope of registration data related to pledge rights encumbering business shares is extended. This data extension for registered and existing pledge rights on business shares can only be made through the amendment requests of the parties involved.

With the introduction of these new legal institutions, the legislator has provided new solutions for business entities, meeting the serious demand that has emerged in economic life in recent years.

By Lilla Majoros, Attorney at law, KCG Partners Law Firm

Head of Tax Advisory and Wealth Management Akos Barati has been promoted to a Partner position with Jalsovszky in Budapest.

According to the firm, the practice’s “classic focus on income tax planning and international tax advisory has been complemented in recent years by a solid wealth planning focus, which Akos has played a lion’s share in developing.” Barati joined Jalsovszky back in 2014 as an Associate and was promoted to Senior Associate and Head of Tax Advisory and Wealth Management in 2021, before making Partner this January. Earlier, he spent over one year with Deloitte and almost three more with EY, starting in 2010.

“With the workload, discipline, and team building we have seen from him over the years, Akos highly deserved his appointment as a Partner.” Managing Partner Pal Jalsovszky commented. “Among other commitments, Akos had a key role in our summer campaign during which we established 77 trusts and three foundations for our clients. Akos has become a widely known and respected tax lawyer over the years, and he will be able to build on this in the future as a Partner of the firm.”

“I consider my new position, which I am very proud of, to be just one stage in my career,” Barati said of the appointment. “I feel that there is still a lot of potential in the team and in the market, and this appointment is a further motivation and inspiration to exploit it.”

With Hungary’s economic and legal outlook plugged into global uncertainties and no shortage of those, two market sectors still stand out in terms of potential – energy and agriculture – according to HP Legal Partner Laszlo Hajdu, who, looking at the fundamentals, shares an optimistic view of the country’s future.

“The global economic landscape this year seems to be predominantly influenced by three major factors: the ongoing war in Ukraine, tensions in the Middle East, and the upcoming US elections,” Hajdu begins. “These events are pivotal and their developments are crucial to monitor as they hold significant sway over the global economy, and, consequently, our country.”

Focusing on Hungary, Hajdu says that he is “quite optimistic” about its market. “Specifically, two sectors show great potential – energy and agriculture. There’s a positive momentum in the energy sector, particularly with the introduction of important legislation aimed at boosting renewables like wind projects and energy storage projects,” he explains. “This shift is largely a strategic move to reduce our dependency on Russian energy.” Moreover, he is of the view that “this is a positive direction and reflects the government’s proactive approach to diversifying energy sources.” Additionally, he says that, in the agriculture sector, “there are several promising green-field development projects in the pipeline, which indicates a healthy level of activity in this sector.”

In terms of the Hungarian M&A mid-market, Hajdu does not expect significant growth in the number of transactions compared to 2023, because yield expectations are still too high. Therefore, he says, “there is a notable trend of Hungarian businesses expanding abroad.”

Hajdu then reports that the banking and finance sector in Hungary is closely aligning itself with the developments in the energy and agriculture sectors. “There are already several financing deals in the pipeline,” he says. “The direction looks promising, especially with the government’s support. The national bank’s decisions on interest rates will also play a crucial role in enhancing lending activity.”

Hajdu also highlights a particular legislative movement: “One notable aspect is the introduction of government pre-emption rights on certain transactions,” he says. “This has been viewed differently by market players; some see it as a major obstacle, while others don’t perceive it as a significant hindrance,” he explains.

Ultimately, Hajdu adds that he expects the “legal sector in Hungary is likely to remain stable, similar to last year. Despite macroeconomic challenges, this year could be a period of consolidation. The struggles of last year are likely to stabilize, which should be beneficial for the legal market overall.”

Former Nagy & Trocsanyi Managing Partner Peter Berethalmi has joined Lakatos Koves & Partners as a Counsel. Joining LKT alongside him is former Nagy & Trocsanyi Attorney at Law Zsuzsanna Regina Lukacs.

According to LKT, “Peter’s wide-ranging practice spans M&A transactional and advisory corporate matters and corporate litigation. Peter has extensive real estate experience having led the real estate team at Nagy & Trocsanyi, with a focus on sale and purchase, leasing, and transactional support to both foreign and domestic investors on greenfield developments.” Before joining LKT, Berethalmi spent 28 years with Nagy & Trocsanyi. He started his career in 1995, spending a year in-house with Shell.

“We are very pleased to welcome Peter and Zsuzsanna to our firm,” Managing Partner Peter Lakatos commented. “Their practice is a perfect bolt-on to our existing and growing Corporate/Commercial, M&A, Real Estate, Employment, IP, and Data Protection practices.”

Since the beginning of the year, the Government has modified the previous legal environment concerning the development of wind power plants in several areas to increase wind power capacity. According to the Ministry of Energy’s communication so far, wind power capacity is expected to increase to around 1,000 MW by 2030.

The main changes are summarised below:

Main changes to building regulations 

1. Protection distance: the protection zone is reduced from the previous distance of 12 km to 700 m, thus significantly increasing the extent of areas that can be considered for wind farm development, subject to the zoning restrictions, outside building areas in special zones exclusively for agricultural or renewable energy purposes. Within building areas or protection zones, wind farms may be installed only in industrial economic zones where the investment is of major economic importance, so that large energy consumers can meet their own energy needs (in addition to solar power) with wind farms, thus allowing a more balanced renewable energy portfolio.
2. Facilitated area: areas designated by the Minister responsible for energy policy, which are particularly favourable for wind energy utilisation, can be developed in which environmental or building permits can be obtained under simplified conditions and in an accelerated procedure (50 days).
3. Height limit: the previous objective height limit of 100 metres for wind turbines has also been removed, leaving the more flexible general rule that the height of wind turbines is limited only to the extent that they would interfere with air traffic or the operation of telecommunications, communications, and defence networks.
4. Owners’ consent: the previous rule requiring consent from owners of neighbouring properties within 1 km of wind farms has also been abolished.

Main changes to the technical rules

Some technical restrictions on wind farm development before 2024, such as a maximum generating unit capacity of 2MW, a maximum peripheral (blade speed) of 60 m/s and a maximum noise level of 60 decibels (40 decibels outside the safety zone), have also been removed. The objective limit of 50 m on the length of a wind turbine blade has also been removed, leaving the restriction that the length of the wind turbine blade must be such that it does not approach the ground surface more than twice the size of the roadway clearance during operation.

Main changes to authorisation rules

Finally, the previous limitation on the number of official permits that can be issued for the construction and commissioning of wind farms and the capacity of wind farms that can be authorised, as well as the obligation to submit tenders, will be removed. The lifting of these restrictions will also significantly facilitate the restart of future wind power projects.

By Gabor Simon, Partner, Head of Energy and Procurement, and Kristof Szeredi, Senior Associate, Finance, Projects and Restructuring, DLA Piper Hungary

Under the GDPR, data subjects may claim compensation if they suffered damages because the controller infringed his obligations under the GDPR. Does a data theft by cybercriminals mean that the controller has not adopted appropriate data security measures meaning that he failed to comply with his data protection obligations? Can the data subject claim compensation if his only damage is the fear that his personal data was misused? The Court of Justice of the European Union answered these questions in a fresh decision which will be analysed in this short article.

Facts

In 2019, the media revealed that the IT system of the Bulgarian authority NAP has been hacked and personal data contained by the IT system was published on the internet. More than 6 million persons were affected by the data breach.

The appellant sued the NAP for compensation claiming that the fear that her personal data leaked because of the data breach might be misused (she might be blackmailed, assaulted or even kidnapped) constitutes a non-material damage.

The first instance court dismissed the appellant action. The court held that the appellant failed to prove that the NAP has not adopted appropriate security measures, further the appellant did not suffer any non-material damage.

The appellant filed an appeal against this decision and the Supreme Administrative Court sent the case to Luxembourg to the CJEU to clarify the provisions of the GDPR as regards to the adequacy of data security measures and the conditions of compensation including the concept of non-material damage.

The adequacy of data security measures

First, the CJEU established that based on the GDPR an unauthorized access to or disclosure of personal data by a third party is not sufficient to conclude that the data security measures adopted by the controller were not appropriate. The EU legislator only expects controllers to mitigate the risks of personal data breaches, however there is no indication in the text of the GDPR that it would be possible to eliminate them.

According to the Luxembourg court, the national courts shall assess the appropriateness of data security measures in two stages. First, it is necessary to identify the risks of a data breach and their consequences for the rights and freedoms of natural persons. Secondly, is shall be ascertained whether the implemented data security measures are appropriate to the identified risks, considering the state of art, the costs of implementation and the parameters of the processing.

Further, the CJEU clarified that in relation to the appropriateness of the data security measures, the burden of proof lies with the controller.

The conditions of compensation

When it comes to the conditions of the compensation to be paid based on the GDPR, the Luxembourg judges shed light on two important questions.

The CJEU recalled that a controller may only be exempted from paying compensation if he is able to demonstrate that the damage is not attributable to him. In the Court’s view, if the personal data breach has been committed by cybercriminals (therefore a third party), the infringement of the GDPR cannot be attributed to the controller unless he failed to comply with his obligations laid down by the GDPR, specifically to adopt appropriate data security measures.

In addition, the Luxembourg court interpreted the concept of damage under the GDPR. According to the Court, by analysing the wording of the GDPR, it is clear that the EU legislature intended to include in those concepts the mere ‘loss of control’ over the personal data even if there had been no misuse of the data to the detriment of the affected data subjects. Thus, the fear experienced by a data subject with regard to the possible misuse of his personal data by third parties as a result of an infringement of the GDPR is capable, in itself, of consulting non-material damage.

Conclusion

To shortly analyse the decision, on the one hand controllers may welcome the CJEU’ attitude regarding the appropriateness of data security measures, namely that even in case of a data breach, controllers may prove that the adopted data security measures were appropriate. On the other, it seems to be a rather high standard of liability that data subjects can claim damages for the mere fear of their data being misused without suffering actual damages.

By Anita Vereb, Attorney-at-law, SmartLegal Schmidt & Partners

Baker McKenzie has advised the Mandarin Oriental Hotel Group on setting up its first operation in Hungary following the renovation and rebranding of the former Gellert Hotel in Budapest.

According to Baker McKenzie, “the renamed Mandarin Oriental Gellert, Budapest, is expected to open in 2027 as a reimagined Art Nouveau architectural gem with a focus on wellness.”

The Baker McKenzie team included Partner Benedek Kovacs and Associate Zsofia Tillinger.

Baker McKenzie could not provide additional information on the deal.

In December 2023, the Hungarian Government significantly eased the regulatory conditions for the establishment of wind turbine projects in Hungary in order to comply with EU requirements and enhance the utilization of green energy.

Amended regulations

The new regulations provide robust guarantees for the enforcement of considerations related to urban, environmental, agricultural, and landscape protection. Technological developments observed in recent years have improved the expected return on investment for wind power projects. Previously, projects initiated under the mandatory offtake system (KÁT) offered favourable, state-guaranteed returns, but were suspended. Today, these projects must be developed in a more market-oriented environment. The main constraint of the previous regulations was the prohibition of placing wind turbines within 12 kilometres of inhabited areas, coupled with various technical requirements that developers could not meet either technically or financially.

As per the amendments to the law, wind turbines cannot be located within the 700-meter protective zone from the designated urban area and its borders, as opposed to the previous 12-km limit. Exceptions are made for industrial areas serving projects of national economic importance. Outside the protective zone, wind turbines cannot be established in areas of excellent agricultural potential, landscape-protected areas, or areas designated for potential world heritage sites. The Government can designate simplified regions in areas where wind energy intensity at a height of 150 meters exceeds 500 watts per square meter. This designation may streamline the approval process, with a maximum processing time of 50 days in the environmental and construction permit procedures. Local municipalities can identify areas for wind turbine installation in their local building regulations, exempting them from general building height limits. Draft regulations are reviewed by government offices and state chief architects. After the acceptance of local building regulations, areas designated for the installation of wind turbines with a capacity of 5-49 megawatts (MW) need to be reclassified as zones for the installation of renewable energy in county spatial development plans. For turbines with a larger capacity, the modification must be reflected in the national spatial development plan. The investor can initiate the modification of the urban development plan or propose an urban development authority procedure at the government offices. The construction of the wind turbine is possible upon the successful completion of subsequent phase-specific permitting procedures.

The planned starting time

The process from selecting the appropriate property till the start of the operation of the wind power system may take 4-5 years. The first grid connection of energy generated by wind power is expected around 2029, based on current governmental forecasts.

Advantages of wind power installation

Wind turbines require only 1% of the land area compared to solar power systems to produce the same amount of electricity. In other words, what solar parks generate on 10,000 square meters, wind turbines can achieve with only 100 square meters. Accuracy of this comparison depends on specific conditions and technological advancements in both wind and solar energy. With a significant boost in harnessing wind energy domestically, there is a substantial step towards balancing the fluctuating weather-dependent production when coupled with solar energy. The wind blows even in the evening and bad weather, compensating for the lack of sun power generation during those times.

Currently, Hungary has 328 MW of operational wind power capacity. This figure is predicted to increase four to five times in the coming years, thanks to the green light for wind power projects in Hungary.

By Lilla Majoros, Attorney at law, KCG Partners Law Firm